Why Bank of America and Its Peers Were Down Today

Make no mistake about it -- the past few weeks have been huge for banks. On the heels of the Federal Reserve's announcement last week that most of the 18 stress-tested lenders could return more capital to shareholders this year than last, shares in Bank of America and others have soared while others such as JPMorgan Chase have plummeted. For today, however, all four of the nation's largest banks are in the red.

Although there have been a number of intervening events since last week, it's impossible to deny that the afterglow of the Fed's comprehensive capital analysis and review process is still largely dictating the recent performance of banks. On one hand, Bank of America's proposed $10.5 billion buyback -- split between $5 billion for common stock and $5.5 billion for preferred -- exceeded the vast majority of analyst expectations. And as a result, its shares have rallied to their highest point since April 2011 even after falling marginally today.

On the other hand, while shares of JPMorgan are also significantly higher than they've been for the past few years, they're down by more than 4% since the end of last week -- that is, when the central bank singled it and Goldman Sachs out for "weaknesses in their capital planning processes" -- click here to read more about JPMorgan's performance and here for Goldman's.

Last Friday, moreover, a bevy of current and former JPMorgan executives were dragged before Congress to answer questions about last year's London Whale scandal, in which the bank lost more than $6 billion due to ostensibly rogue bets made by traders in London. And to add insult to injury, it was reported earlier this week that the Office of the Comptroller of the Currency, one of JPMorgan's primary regulators, had previously downgraded its rating of the bank's executive to a level that signifies "needs improvement."

Finally, if all this wasn't enough, the nation's largest banks -- including those listed above as well as Citigroup and others -- have now found themselves in the crosshairs of yet another legal battle. As my colleagues Matt Koppenheffer and David Hanson discussed here, the publically administered mortgage giant Freddie Mac has filed a lawsuit against 15 major lenders over their roles in the LIBOR manipulation scandal. The purported losses amount to $3 billion.

Given all of these issues, it's arguably a surprise that any bank stocks are higher this week. And in the absence of any other explanations, it seems clear that better or worse-than-expected capital returns remain the primary catalyst in both directions.

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Fool contributor John Maxfield owns shares of Bank of America. The Motley Fool recommends Goldman Sachs. The Motley Fool owns shares of Bank of America, Citigroup Inc , and JPMorgan Chase & Co.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.